UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-9328
ECOLAB INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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41-0231510 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
1 Ecolab Place, St. Paul, Minnesota 55102
(Address of principal executive offices)(Zip Code)
1-800-232-6522
(Registrant’s telephone number, including area code)
(Not applicable)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ |
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Accelerated filer ☐ |
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Non-accelerated filer ☐ |
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Smaller reporting company ☐ |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 30, 2018.
288,873,052 shares of common stock, par value $1.00 per share.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
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Third Quarter Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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(millions, except per share amounts) |
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2018 |
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2017 |
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2018 |
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2017 |
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Product and equipment sales |
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$3,090.3 |
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$2,931.9 |
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$8,985.7 |
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$8,376.9 |
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Service and lease sales |
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656.9 |
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632.6 |
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1,922.0 |
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1,810.0 |
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Net sales |
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3,747.2 |
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3,564.5 |
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10,907.7 |
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10,186.9 |
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Product and equipment cost of sales |
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1,811.4 |
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1,676.9 |
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5,259.9 |
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4,834.2 |
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Service and lease cost of sales |
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388.8 |
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387.7 |
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1,178.5 |
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1,127.6 |
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Cost of sales (including special charges (a)) |
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2,200.2 |
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2,064.6 |
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6,438.4 |
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5,961.8 |
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Selling, general and administrative expenses |
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955.2 |
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930.9 |
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2,990.5 |
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2,836.3 |
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Special (gains) and charges |
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75.6 |
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4.9 |
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113.7 |
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47.9 |
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Operating income |
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516.2 |
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564.1 |
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1,365.1 |
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1,340.9 |
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Other (income) expense |
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(21.0) |
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(16.9) |
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(60.0) |
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(50.5) |
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Interest expense, net |
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55.7 |
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55.1 |
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168.4 |
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177.2 |
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Income before income taxes |
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481.5 |
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525.9 |
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1,256.7 |
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1,214.2 |
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Provision for income taxes |
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43.2 |
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129.3 |
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216.6 |
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264.0 |
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Net income including noncontrolling interest |
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438.3 |
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396.6 |
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1,040.1 |
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950.2 |
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Net income attributable to noncontrolling interest |
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2.9 |
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3.4 |
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6.1 |
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8.2 |
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Net income attributable to Ecolab |
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$435.4 |
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$393.2 |
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$1,034.0 |
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$942.0 |
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Earnings attributable to Ecolab per common share |
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Basic |
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$ 1.51 |
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$ 1.36 |
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$ 3.58 |
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$ 3.25 |
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Diluted |
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$ 1.48 |
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$ 1.34 |
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$ 3.53 |
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$ 3.20 |
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Dividends declared per common share |
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$ 0.41 |
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$ 0.37 |
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$ 1.23 |
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$ 1.11 |
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Weighted-average common shares outstanding |
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Basic |
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288.8 |
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289.0 |
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288.8 |
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289.8 |
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Diluted |
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293.4 |
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293.4 |
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293.1 |
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294.2 |
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(a) |
Cost of sales includes special (gains) and charges of $3.6 and $0.3 million in the third quarter of 2018 and 2017, respectively, and $3.5 and $26.2 million in the first nine months of 2018 and 2017, respectively, which is recorded in product and equipment cost of sales. |
The accompanying notes are an integral part of the consolidated financial statements.
2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
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Third Quarter Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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(millions) |
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2018 |
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2017 |
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2018 |
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2017 |
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Net income including noncontrolling interest |
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$438.3 |
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$396.6 |
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$1,040.1 |
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$950.2 |
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Other comprehensive income (loss), net of tax |
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Foreign currency translation adjustments |
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Foreign currency translation |
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(201.8) |
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150.0 |
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(218.9) |
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274.6 |
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Gain (loss) on net investment hedges |
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9.1 |
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(50.9) |
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31.9 |
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(103.7) |
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(192.7) |
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99.1 |
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(187.0) |
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170.9 |
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Derivatives and hedging instruments |
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11.0 |
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(20.8) |
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26.3 |
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(29.1) |
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Pension and postretirement benefits |
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Amortization of net actuarial loss and prior service costs included in |
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net periodic pension and postretirement costs |
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7.8 |
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1.3 |
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24.1 |
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8.2 |
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Postretirement benefits changes |
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- |
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- |
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14.4 |
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- |
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7.8 |
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1.3 |
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38.5 |
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8.2 |
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Subtotal |
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(173.9) |
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79.6 |
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(122.2) |
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150.0 |
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Total comprehensive income, including noncontrolling interest |
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264.4 |
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476.2 |
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917.9 |
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1,100.2 |
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Comprehensive income attributable to noncontrolling interest |
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1.7 |
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4.0 |
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5.9 |
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10.8 |
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Comprehensive income attributable to Ecolab |
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$262.7 |
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$472.2 |
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$912.0 |
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$1,089.4 |
The accompanying notes are an integral part of the consolidated financial statements.
3
CONSOLIDATED BALANCE SHEET
(unaudited)
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September 30 |
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December 31 |
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(millions, except shares and per share amounts) |
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2018 |
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2017 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$203.6 |
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$211.4 |
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Accounts receivable, net |
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2,652.7 |
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2,571.4 |
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Inventories |
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1,587.9 |
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1,446.5 |
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Other current assets |
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378.1 |
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365.0 |
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Total current assets |
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4,822.3 |
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4,594.3 |
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Property, plant and equipment, net |
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3,778.0 |
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3,707.1 |
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Goodwill |
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7,078.4 |
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7,167.1 |
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Other intangible assets, net |
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3,820.4 |
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4,017.6 |
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Other assets |
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463.5 |
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477.4 |
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Total assets |
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$19,962.6 |
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$19,963.5 |
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LIABILITIES AND EQUITY |
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Current liabilities |
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Short-term debt |
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$769.4 |
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$564.4 |
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Accounts payable |
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1,195.3 |
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1,177.1 |
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Compensation and benefits |
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528.2 |
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549.4 |
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Income taxes |
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50.3 |
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183.6 |
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Other current liabilities |
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1,046.6 |
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1,000.7 |
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Total current liabilities |
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3,589.8 |
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3,475.2 |
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Long-term debt |
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6,334.8 |
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6,758.3 |
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Postretirement health care and pension benefits |
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966.9 |
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1,025.5 |
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Deferred income taxes |
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711.8 |
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635.4 |
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Other liabilities |
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376.3 |
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415.3 |
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Total liabilities |
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11,979.6 |
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12,309.7 |
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Equity (a) |
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Common stock |
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356.5 |
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354.7 |
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Additional paid-in capital |
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5,586.0 |
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5,435.7 |
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Retained earnings |
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8,646.9 |
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8,011.6 |
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Accumulated other comprehensive loss |
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(1,765.4) |
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(1,643.4) |
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Treasury stock |
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(4,894.6) |
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(4,575.0) |
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Total Ecolab shareholders’ equity |
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7,929.4 |
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7,583.6 |
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Noncontrolling interest |
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53.6 |
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70.2 |
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Total equity |
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7,983.0 |
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7,653.8 |
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Total liabilities and equity |
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$19,962.6 |
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$19,963.5 |
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(a) |
Common stock, 800.0 million shares authorized, $1.00 par value per share, 288.9 million shares outstanding at September 30, 2018 and 289.3 million shares outstanding at December 31, 2017. Shares outstanding are net of treasury stock. |
The accompanying notes are an integral part of the consolidated financial statements.
4
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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Nine Months Ended |
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September 30 |
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(millions) |
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2018 |
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2017 |
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OPERATING ACTIVITIES |
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Net income including noncontrolling interest |
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$1,040.1 |
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$950.2 |
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Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation |
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461.5 |
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437.0 |
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Amortization |
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238.9 |
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228.5 |
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Deferred income taxes |
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56.6 |
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9.8 |
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Share-based compensation expense |
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75.5 |
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71.8 |
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Pension and postretirement plan contributions |
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(46.0) |
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(131.0) |
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Pension and postretirement plan expense |
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23.4 |
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26.5 |
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Restructuring charges, net of cash paid |
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57.4 |
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13.3 |
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Other, net |
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20.0 |
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19.9 |
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Changes in operating assets and liabilities, net of effect of acquisitions: |
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Accounts receivable |
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(161.3) |
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(23.2) |
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Inventories |
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(171.2) |
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(116.9) |
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Other assets |
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(22.9) |
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8.4 |
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Accounts payable |
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52.2 |
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57.0 |
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Other liabilities |
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(173.8) |
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(106.4) |
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Cash provided by operating activities |
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1,450.4 |
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1,444.9 |
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INVESTING ACTIVITIES |
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Capital expenditures |
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(634.1) |
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(594.0) |
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Property and other assets sold |
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29.5 |
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4.1 |
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Acquisitions and investments in affiliates, net of cash acquired |
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(77.6) |
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(831.2) |
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Divestiture of businesses |
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9.2 |
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- |
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Settlement of net investment hedges |
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14.1 |
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- |
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Other, net |
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10.0 |
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(0.8) |
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Cash used for investing activities |
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(648.9) |
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(1,421.9) |
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FINANCING ACTIVITIES |
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Net issuances of commercial paper and notes payable |
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115.7 |
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187.8 |
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Long-term debt borrowings |
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- |
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495.0 |
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Long-term debt repayments |
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|
(301.8) |
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(20.1) |
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Reacquired shares |
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|
|
(321.4) |
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(587.7) |
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Dividends paid |
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(370.8) |
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(330.3) |
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Exercise of employee stock options |
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85.8 |
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63.0 |
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Acquisition related liabilities and contingent consideration |
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(10.2) |
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(8.2) |
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Acquisition of noncontrolling interests |
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(13.1) |
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- |
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Other, net |
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(3.7) |
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- |
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Cash used for financing activities |
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(819.5) |
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(200.5) |
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|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
|
10.2 |
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6.2 |
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Decrease in cash, cash equivalents and restricted cash |
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(7.8) |
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(171.3) |
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Cash, cash equivalents and restricted cash, beginning of period (a) |
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|
211.4 |
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380.4 |
|
Cash, cash equivalents and restricted cash, end of period (b) |
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$203.6 |
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$209.1 |
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(a) |
2017 includes $53.0 million of restricted cash related to the Anios transaction, which was included in other assets on the Consolidated Balance Sheet as of December 31, 2016. |
|
(b) |
There was no restricted cash as of September 30, 2018 and 2017 and December 31, 2017. |
The accompanying notes are an integral part of the consolidated financial statements.
5
CONSOLIDATED STATEMENT OF EQUITY
(unaudited)
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Ecolab Shareholders |
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Additional |
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Ecolab |
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Non- |
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Common |
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Paid-in |
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Retained |
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OCI |
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Treasury |
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Shareholders' |
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Controlling |
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Total |
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(millions) |
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Stock |
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Capital |
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Earnings |
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(Loss) |
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Stock |
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Equity |
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Interest |
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Equity |
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Balance, December 31, 2015 |
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$350.3 |
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$5,086.1 |
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$6,160.3 |
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$(1,423.3) |
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$(3,263.5) |
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$6,909.9 |
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$70.5 |
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$6,980.4 |
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New accounting guidance adoption (a) |
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(29.3) |
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(29.3) |
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(29.3) |
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Net income |
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1,229.0 |
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1,229.0 |
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17.5 |
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1,246.5 |
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Comprehensive income (loss) activity |
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(289.6) |
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(289.6) |
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(1.3) |
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(290.9) |
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Cash dividends declared |
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(414.9) |
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(414.9) |
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(16.9) |
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(431.8) |
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Stock options and awards |
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2.3 |
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200.2 |
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3.2 |
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205.7 |
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205.7 |
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Reacquired shares |
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(15.5) |
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(724.1) |
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(739.6) |
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(739.6) |
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Balance, December 31, 2016 |
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352.6 |
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5,270.8 |
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6,945.1 |
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(1,712.9) |
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(3,984.4) |
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6,871.2 |
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69.8 |
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6,941.0 |
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New accounting guidance adoption (b) |
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1.9 |
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1.9 |
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1.9 |
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Net income |
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1,504.6 |
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1,504.6 |
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14.0 |
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1,518.6 |
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Comprehensive income (loss) activity |
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69.5 |
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69.5 |
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1.7 |
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71.2 |
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Cash dividends declared |
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(440.0) |
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(440.0) |
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(19.3) |
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(459.3) |
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Acquisition of noncontrolling interests |
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4.0 |
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4.0 |
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Stock options and awards |
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2.1 |
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170.3 |
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4.3 |
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176.7 |
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176.7 |
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Reacquired shares |
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(5.4) |
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(594.9) |
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(600.3) |
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(600.3) |
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Balance, December 31, 2017 |
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354.7 |
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5,435.7 |
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8,011.6 |
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(1,643.4) |
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(4,575.0) |
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7,583.6 |
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70.2 |
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7,653.8 |
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New accounting guidance adoption (c) |
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(43.6) |
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(43.6) |
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(43.6) |
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Net income |
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1,034.0 |
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1,034.0 |
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6.1 |
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1,040.1 |
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Comprehensive income (loss) activity |
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|
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(122.0) |
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